Sullivan Dewing News

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How can you do that I hear you ask? Naturally I don’t have the answer but some anecdotal stories
may challenge your thinking.

In the past 6 months we have seen some terrible disasters both in Australia and overseas.
What would you do if you had just opened a shop in Queensland, then your shop and most of the
town were wiped out as a result of the devastating floods.

A friend of mine bought a commercial ski lodge in Miseko, Japan 2 years ago. Whilst this is on the
northern island of Hokaido and not affected by the radiation fallout from the tsunami on the
mainland, tourists will be cautious and may stay away for the next ski season. On top of that the
rising AUS$ against the US$ will mean more skiers may change their plans and ski the US rather than
Japan.

Another friend opened a healthclub in Christchurch NZ which was wiped out in the earthquake. This
club has still not re-opened and only a minor part of the insurance cover has been received.

I was listening to an interview with Kerrie Pottharst, the Australian Volleyball gold medallist, on the AMI Business Essentials monthly June 2011 audio CD. Kerrie spoke about setting goals, short and long term; measuring (KPI’s); marketing and building relationships.Read More

When you’re feeling unwell or lacking in performance, you would usually
visit your GP or health professional for a diagnosis and possibly a
remedy to get you back on your way to good health -right?

Well, your business is no different. Sullivan Dewing now uses a complex,
financial modeling software program to provide a critical financial
analysis – or Health Check – of your business.

Major Australian banks have recently adopted this software for the
specific purpose of processing and approving business finance
applications.

Apart from assisting in identifying the ability of a business to meet
the banks “hidden criteria” for finance applications, this service has
been invaluable in identifying the key drivers within a business that
can assist in turning a loss making or cashflow poor business into an
extremely successful and “healthy” one.

Here are some recent case study scenarios conducted on Sullivan Dewing clients:Case Study 1 – Manufacturing business in building industry:

Analysis of the previous 4 years financial results demonstrated that the
company is performing very well and is in a strong position to sustain a
high rate of growth.

However, by analyzing the key strengths and weaknesses of the business,
it was found that due to the fact that the business was successful
enough to avoid the “cashflow crisis” that so many businesses
experience, the culture had become such that cashflow wasn’t important!

So, whilst it was confirmed that the business had good positive cashflow
($156k), undertaking the Business Health Check lead to the discovery
that the cashflow of the business had been trending down over recent
years and as a result the business currently had “cashflow wastage” of
$357k.

This is underutilised surplus cashflow. In this case, by working on
improving a few key drivers of the business, the owner has the potential
to personally benefit from the increased levels of surplus cash that
result from the changes through paying off personal, non tax deductible
debt (the home loan!).

Case Study 2 -Service business to commercial clients:

In contrast to case study 1, the analysis suggested that it is vital for
the ongoing future of the business that certain key factors be
addressed and improved as the business was not currently in a position
to sustain future growth.

If the business continues to grow as it has, all things being equal, it
would have a detrimental rather than positive impact, as cashflow would
dramatically decline. In fact, a 5% increase in revenue growth would
result in a reduction in cashflow of $100k!

It was shown that little attention has been paid to the key drivers of
the business as they are trending in a negative position. The overall
effect of this has been that the growth of the business in 2006 was at a
rate higher than the business could sustain and has thus put a heavy
strain on cashflow.

The good news is, that by knowing this information and by making some
relatively minor, informed changes to the key drivers of the business,
cashflow has the potential to turn around from a negative $111k to a
cash positive position in the next financial year.

Every business we have analysed has leaked cashflow. No business is
financially fully fit; there is always room for improvement. It is our
bet that your business has leaking cashflow too – why not let Sullivan
Dewing review your business so that you can turn your business around
and benefit from that cashflow wastage?

Contact Jeni Wilcock on 9526 1211 or by emailing jeni@sullivandewing.com.au if you would like to have a Business Health Check conducted on your business, or to find our more information.
Read More

We have witnessed a lot of activity in buying and
selling businesses lately. You may have heard about the venture capital
buyers of Qantas and Coles in the big end of town, you may not be aware
that it is also happening in our end of town.

Small businesses, like ours, are being sold for profit multiples not
thought of in the old days. Yes, I said, “profit multiples”. Yes, that
means you will get the right price for your business if certain factors,
including profit, are present.

Don’t be fooled into believing that you only need to worry about this
when you come to sell! The point is, advance preparation for sale can be
a business owner's best weapon and obtaining a periodic valuation of
the business can be an excellent tool to gain an understanding of the
market's view of your business.

I couldn’t tell you the number of times we have received phone calls
from clients along the lines of … “I have a quick question for you… how
much is my business worth?”

Unfortunately, the answer is not as quick as the question! The answer is always – depends!

It depends on a lot of factors:
• Who is buying?
• Why are you selling?
• Do you have a business? Or unfortunately do you just have a job?
• Is your business profitable?
• Will your customers stay when you sell?
• Will your team stay?

Remember the definition of a business – “something that makes a profit
when you’re not there”. Imagine going away for a year and then coming
back. If there is anything left…you have a business.

Let’s start with some basics. What do buyers look for when they buy your
business? Or conversely, what should you have in place to achieve the
best sale price?

The important thing to note is that with any method used for the
valuation of an ongoing business, primacy in determining value goes to
the business’ EARNINGS.

We understand that if you’re like most small businesses you will have
made use of tactics such as giving yourself and family members as many
perks and benefits as possible, kept your children on the payroll, made
large contributions into your superannuation etc – so as to minimise
your profit and minimise your tax liability.

That means your profits won’t be showing as high as they really could
be. So, the first step is to normalise your financial statements and
restate the profit so that, for example, salaries more accurately
reflect a typical salary for that position rather than any inflated
amount that may be being paid.

While it is important to restate financial statements, it is critical
not to produce misleading figures through misstatements or omissions,
which might make you liable for fraud. Expert accounting advice is
essential here.

If you are thinking of selling or passing on the business, also consider
your business structure. If the business depends on your own expertise,
what is it worth without you? You can increase the value of the
business by bringing in people who can do your job and bring management
depth.

Start delegating and step back to let the business run with less
intervention from you. Otherwise, if the business obviously relies on
just one individual and there is no succession plan you are likely to be
faced with a request for a ‘key man discount’. You can also train up
employees so that they have more expertise in the business.

If you are preparing sufficiently far in advance, one of the most
important things you can do is to take steps to maximise the
profitability of the business. Just let us know if you are interested in
how to do this.

So what are you waiting on? It’s time to start knocking your business
into shape for that eventual day when you will sell. If you are not
selling your business then by default you are buying it.